Like me, many of you watched President Trump’s train wreck of a speech on Afghanistan earlier tonight. It’s nearly midnight and I am still reeling.

I guess it was too much to ask to hear him admit the obvious and draw the obvious conclusions:

After 16 years – the longest war in US history – no one even remembers what we are fighting for in Afghanistan.

The war is over.

Not another American (or innocent Afghan) life for one of the most convoluted and idiotic wars in history!

Trump of 2012 and 2013 said just that. Candidate Trump said just that.

Then tonight he told us that once you sit in that chair in the Oval Office you see things differently.

What does that mean?

Once elected you betray your promises so as to please the deep state? Here’s the truth that neither President Trump nor his newfound neocon coterie can deny:

1) A gang of radical Saudis attacked the US on 9/11. Their leader, Osama bin Laden, was a CIA favorite when he was fighting the Soviets in Afghanistan. He clearly listed his grievances after he fell out with his CIA sponsors: US sanctions in Iraq were killing innocents; US policy grossly favored the Israelis in the conflict with Palestinians; and US troops in his Saudi holy land were unacceptable.

2) Osama’s radicals roamed from country to country until they were able to briefly settle in chaotic late 1990s Afghanistan for a time. They plotted the attack on the US from Florida, Germany, and elsewhere. They allegedly had a training camp in Afghanistan. We know from the once-secret 28 pages of the Congressional Intelligence Committee report on 9/11 that they had Saudi state sponsorship.

3) Bin Laden’s group of Saudis attacked the US on 9/11. Washington’s neocons attacked Afghanistan and then Iraq in retaliation, neither of which had much to do with bin Laden or 9/11. Certainly not when compared to the complicity of the Saudi government at the highest levels.

4) Sixteen years — and trillions of dollars and thousands of US military lives — later no one knows what the goals are in Afghanistan. Not even Trump, which is why he said tonight that he would no longer discuss our objectives in Afghanistan but instead would just concentrate on “killing terrorists.”

Gen. Mike Flynn had it right in 2015 when he said that the US drone program was creating more terrorists than it was killing. Trump’s foolish escalation will do the same. It will fail because it cannot do otherwise. It will only create more terrorists to justify more US intervention. And so on until our financial collapse. The US government cannot kill its way to peace in Afghanistan. Or anywhere else.

Even before Ray Dalio doubled down on his warning that the US has become as dangerously fragmented as during the pre-World War II days of 1937, prompting him to “tactically reduce” risk, some of the biggest names on Wall Street were selling.

Two weeks ago, T.Rowe Price made waves when it said that it had cut the stock portion of its asset allocation portfolios to the lowest level since 2000. The Baltimore-based money manager said it also reduced its holdings of high-yield bonds and emerging market bonds for the same reason. Roughly at the same time, in its mid-year review, Pimco said that “with the macroeconomic backdrop evolving in the face of potentially negative pivot points and considering asset prices generally are fully valued, we are modestly risk-off in our overall positioning” adding that “we recognize events could still surprise to the upside, but starting valuations leave little room for error.”

This followed a similar preannouncement by DoubleLine’s Jeff Gundlach who not only said that he is reducing his positions in junk bonds, EM debt and other lower-quality investments, but predicted – correctly – the volatility spike in the first week of August.

Then it was Guggenheim’s turn to make a similar warning: in its Q3 Fixed Income Outlook, the asset manager said that “the downside risk of a near-term market correction grows the longer volatilityremains depressed. Asset prices are at record highs while volatility has rarely been lower. Our Global CIO and Macroeconomic and Investment Research team believe these indicators point to a dangerous level of complacency in the market, which has shrugged off the Fed’s guidance that economic conditions support monetary tightening… given where asset prices are, they would have a long way to fall.”

Guggeneim CIO Anne Walsh also warned that “high-yield corporate bonds are particularly at risk due to their relatively rich pricing, so we have continued to significantly reduce our exposure to that sector. The high-yield corporate bond allocations across our Core and Multi-Credit strategies are now at the lowest level since their inception. The bank loan allocation has also been reduced as a majority of the market is trading at or above par with some loans trading at negative yields to call.”

The list above is by no means exhaustive: according to a Bloomberg calculations, investors overseeing a total of over $1.1 trillion have been cutting exposure to junk bonds amid growing concerns about rising rates, central bank policy and general geopolitical uncertainty.

In early July told Bloomberg they have cut holdings of junk debt to about 40 percent from more than half.

“We are more likely to decrease risk rather than increase risk due to valuations,” New York-based portfolio manager Daniel Goldberg said.

DoubleLine Capital LP; AUM: about $110 billion

Jeffrey Gundlach, co-founder and chief executive officer, said in an interview published Aug. 8 he’s reducing holdings in junk bonds and emerging-market debt and investing more in higher-quality credits with less sensitivity to rising interest rates.

European high-yield bonds have hit “wack-o season,” Gundlach said in a tweet last week.

Allianz Global Investors; AUM: $586 billion

David Newman, head of global high yield, said in an interview his fund has begun trimming its euro high-yield exposure because record valuations make the notes particularly vulnerable in a wider selloff.

Said earlier this month it has reduced holdings of European junk bonds.

The funds are shifting focus to equities, where there is more potential upside and higher yields from dividends, according to Christian Hille, the Frankfurt-based global head of multi asset.

Guggenheim Partners; AUM: >$209 billion

Reduced allocation to high-yield corporate bonds across core and multi-credit strategies to the lowest level since its inception, according to a third-quarter outlook published on Thursday.

Junk bonds are “particularly at risk due to their relatively rich pricing,” portfolio managers including James Michal say in outlook report.

Brandywine Global Investment Management; AUM: $72 billion

Fund has cut euro junk-bond allocations to a seven-year low because of valuation concerns, Regina Borromeo, head of international high yield, said in an interview this month

Who knows if these marquee names are right: if it’s them against the central banks, all their sales will do is forego potential profits as the world’s central banks push yields and spreads to levels that are beyond laughably ludicrous, but such is life in a centrally planned world where nothing makes sense. We do have one question: if asset managers with more than $1.1 trillion in AUM are all selling junk bonds, i) who is buying, and ii) how is it possible that the yield on the Barclays global HY index has barly budged from all time lows?

Forex news for North American traders on August 22, 2017
In other markets, the snapshot shows:
– Spot gold reacted negatively to the US dollars gains today. It was down -$6.55 to 1285.33
The USD moved higher in trading today. The greenback was supporte…

Colorado Gov. John W. Hickenlooper (D) announced eight policy initiatives following a 3-month review of oil and gas operations in the state after a natural gas flowline exploded in a home in April, killing 2 people and injuring others. “The actions we announced today are a responsible and appropriate response that places public safety first,” the governor said during an Aug. 22 press conference in Denver.

The American Petroleum Institute (API) reported a major drawdown on U.S. crude oil inventories of 3.595 million barrels—one-third of last week’s API-reported draw of 9.2 million. Cushing inventories were also down 462,000 barrels, for the week ended August 18. Gasoline inventories rose significantly, up 1.402 million barrels, while distillates were up 2.048 million barrels. At 4:49 pm EST, right after the API data release, WTI was at $47.63, while Brent was trading at $51.69. (Click to enlarge) On Friday, crude oil prices had…

The struggles of Provident Financial have fuelled concerns about a new sub-prime crisis

Buyers of Provident’s car loans are up to their eyeballs in debt

Regulation has discouraged big banks from offering affordable credit to the poor

A decade on from the financial crisis, the reports today about the sub-prime lender Provident Financial have given us a nasty case of déjà vu.

Within the space of a year, its loan repayment rates have fallen from 90 per cent to 57 per cent – leading to profit warnings, the departure of its chief executive, and a collapse in its share price.

It feels like a frighteningly familiar story. Overstretched customers at the bottom of the economic food chain rack up unaffordable loans from greedy financiers. When the music stops, the credit failures cascade upwards, bringing down lender after lender until the whole financial edifice comes apart.

So are we facing a new sub-prime crisis? There are two conflicting narratives.

The first is that Provident’s problems are unique to Provident. The firm operates in what is euphemistically known as “the non-standard credit market” – ie providing loans to people who are woeful credit risks. It does this via Vanquis Bank, which sells credit cards; Provident, which sells domestic loans; Satsuma, which does short-term online loans a la Wonga; and Moneybarn, which provides car finance.

The one-line explanation for what went wrong with the business is that Provident moved from collecting what it was owed via “self-employed door-to-door agents” to full-time “customer experience managers”. In other words, rather than outsourcing the business of debt collection it would bring it in-house.

The move followed followed claims, for example by Citizens Advice (£), that the agents of some doorstep lenders were engaging in illegal cold-calling, irresponsible lending or naked intimidation – though Provident denied that its own agents engaged in such behaviour, and said they would be sacked immediately if they did so.

The problem was that, as soon as the firm told the existing collection agents that they were being fired, they walked out rather than stay through the transition. Hence the plunging rates of debt collection, which the new staff haven’t been able to get back up.

But there’s another narrative – which is that Provident’s entire business model is evidence of a serious and potentially systemic financial problem.

The alarm here is particularly focused on the sub-prime car-finance industry, in which Provident (via Moneybarn) is the biggest player. Across the sector, the credit checks are incredibly swift and (according to many reports) rather cursory. That’s led many people to worry that the market is getting out of hand – including the Financial Conduct Authority, which has launched an investigation. There’s a particular echo of the sub-prime crisis in the increasing popularity of personal contract plans (PCPs) – clever financial innovations which offer very poor people access to very nice cars, because they are effectively leasing them rather than owning them.

Moneybarn, to be fair, doesn’t focus on PCPs: it’s more about old-fashioned lending. But that lending is going to people who are often heavily indebted already. Back in July, Liberum Capital published a research note explaining why it had put a SELL rating on Provident. The most startling figure was an estimate that “a typical Moneybarn customer spends 66 per cent of after-tax income on rent, car loan and credit card payments”. These, in other words, are people who are already drowning in debt – and the slightest rise in interest rates, or economic slowdown, or spike in inflation, could see them go under completely.

In America, it was fears that another bubble was forming in sub-prime loans that prompted the big banks to pull back from the car market in particular. So are we in for a repeat of 2008?

Personally, I’m optimistic. We’re talking about fewer borrowers and lenders: Moneybarn, for example, has only 41,000 customers. Also, regulators are now hyper-aware of the dangers of excessive lending, and have taken a whole series of steps to make sure that the dominos cannot (or should not) topple into each other as they did back then.

In fact, the real message of the Provident story is very different – because it’s about the unintended consequence of those same regulations, and the people who have suffered because of them.

If you read Provident’s annual report, there is an awful lot in there about social responsibility – to the point where the opening dozen or so pages could essentially be boiled down to the phrase “We’re not Wonga!” in 144pt bold caps. But there’s not a lot of stuff in there about interest rates.

You can get an idea of just how profitable Provident is, however, by looking at its component businesses. Last year Vanquis made £204.5 million from its 1.5 million credit card customers. Provident and Satsuma, which are part of the same unit, made £115.2 million from approximately 850,000 customers. And Moneybarn made £31.1 million from those 41,000 customers.

In other words, each customer for Provident’s credit cards, and home or online loans delivered approximately £135 in profit. For Moneybarn, it was a staggering £758.

So where are these profits coming from? Not, as you might think, from those at the very bottom of society. The average customer for Vanquis is 35-45, living in rented accommodation but with a full-time job paying £20k to £35k. Because of their “thin or impaired credit history”, the maximum line of credit is no more than £4,000, with a representative APR of 39.9 per cent. The statistics for Moneybarn are similar: £20k to £30k in income, with an APR of 33 per cent.

For Provident and Satsuma, the income is lower and the interest is higher – a lot higher. These are people on £10k-£15k, paying interest rates of 535.3% for Provident and an eye-watering 991% for Satsuma, although the loans are usually smaller and shorter-term.

How, given these statistics, can I argue that the regulations are a problem? Don’t we really need more regulations to protect people from these greedy, unscrupulous loan sharks?

The problem here is actually pretty simple.

Before the financial crisis, the big banks lent to all sorts of people they really shouldn’t have. In order to prevent the same thing happening again, the rules were tightened up – now you could only get a loan for a house, or a car, or pretty much anything, if you had the sort of credit rating that would make your bank manager (if they still existed) beam with approval.

Yet this process had a very important consequence: the mass withdrawal of blue-chip financial institutions from the lower end of the market. Barclays, for example, used to be well known as a place that bankrupts could go to for a second chance. Now, such customers often find themselves locked out of the credit market.

Britain, as the official Financial Inclusion Commission points out, has a pretty comprehensive banking system: only 1.5 million people are officially “unbanked” (although a great deal more are not all that happy with the service they’re getting…).

But even those with bank accounts often struggle to get access to credit. According to Provident, there are between 41 and 43 million Britons in the “standard” credit market, and between 10 and 12 million who are locked out of it – plus approximately two million who flow between the two depending on the health of their finances.

Thanks in large part to the banks’ and regulators’ flight from risk post-2008, those 10 to 12 million – and their counterparts in foreign countries – have been left to the likes of lenders like Provident. Or to those who are far less scrupulous: since the crash, payday lending has grown massively, but so has the number of illegal moneylenders and pawnbrokers.

As Provident’s profit figures suggest, this is an incredibly profitable niche. Last year, Provident’s return on equity (ROE) across the group was 45 per cent – in other words, every £1 in assets delivered a 45p return in profit. By comparison, Metro Bank – a challenger bank serving a more conventional market – is aiming for an ROE of 18 per cent in 2020. At the height of the boom years, Barclays’s ROE only reached 20 per cent – in these staider times, it is now barely 3 per cent.

What’s happening, in other words, is that the poorest in society are paying more – much more – than they should for credit and lending, or even for access to the banking system. Syed Kamall MEP has written powerfully on CapX about the damage this causes.

Access to credit is one of the things that lets people climb the economic ladder, in the developed and the developing world. But access to too much credit – or to credit on the terms that are generally now on offer – keeps them trapped in debt.

No one wants to open the floodgates in terms of lending – lord knows we’re all indebted enough already as it is. But encouraging the banks to expand their services, or coming up with new ways to help the unbanked and deliver low-cost, low-risk credit, would directly benefit the poorest in society. Such people will never be able to borrow on the same terms as those with unblemished credit records. But the more players there are in the market, the lower the premium they will be charged.

As it is, in attempting to protect the financial system from another crash, we’ve left millions of people with no option but to turn to the likes of Provident – which may often end up being a very improvident move indeed.